The FINANCIAL — “More and more Georgian companies realize the advantages of internal audit function. The banking sector is one of the good examples where internal audit functions are put in place,” told Nelson Petrosyan, Director/Partner of Grant Thornton Georgia in exclusive interview with The FINANCIAL.
Large companies are also another example where more and more often we see internal audit divisions being instituted.
“Internal audit function has a rather complimentary outcome because internal action is always better understood than any similar external action. Internal auditors are the best ambassadors, inside their companies, about the need for a professional approach in any division of company management,” Petrosyan added.
Grant Thornton Georgia, part of Grant Thornton International, is a multi-professional group of public accountants and auditors, specialist advisers in finance, business and management, as well as tax and legal advisers operating in Georgia since the year 1999.
Grant Thornton Georgia has increased its turnover by approximately 40% in 2010.The company has experienced significant growth of its activities in Georgia in the past year. The entity says the major factor behind such growth were the strategic decisions made by the company management, including but not limited to, increased level of market presence and expanding our investments related to obtaining a stronger presence in Georgia.
To the question of from when should company start using the audit service, including company size, growth rate, structure, Mr. Petrosyan told this was not a question of size or turnover. “If the company management hesitates on whether or not it is best timing to undergo audit, I would suggest management to answer to one simple question: Would you like a professional to give you his opinion and recommendations about your business?” Petrosyan asked.
“If the answer is "Yes", go and find an auditor who will be so happy to create a real team with you. If this team operates, in a year’s time company management will be surprised how much added value their auditor has brought to the business.”
Q. Small and medium size companies do not audit their companies due to high costs of the service. In your opinion, why is not special low price service created for SMEs?
A. I will need to surprise you here. Audit costs are much cheaper than you would imagine! We perform many audit assignment at SMEs and the audit cost has never been a problem as soon as managers understand what audit means and what benefits it brings to their business.
Q. Businesses in Georgia are among the most optimistic owners according to the 2011 Grant Thornton International Business Report (IBR). It holds ninth position in the list following Germany. Georgia is followed by Argentina, Canada, Botswana and Singapore. However, despite this fact investments are still low in the country. In your opinion why?
A. I believe it is question of time. Businessmen are not used to find such a good place to invest in the former Soviet counties. That's why Grant Thornton study was very interesting. There are yet some very appealing and prospective investments taking place as we speak. Those who invest first are right as they choose the best part!
Q. Ed Nusbaum, CEO of Grant Thornton International, told that in recent years the focus for emerging economies has been on the BRIC economies of Brazil, Russia, India and China. How would you evaluate potential of Georgia from investment side in the global market while making choice among emerging and BRIC economies?
A. Even if Russia is for sure with huge natural resources, it's not so easy to invest there. As you know, investors don't need only potential markets, they obviously need to be secured, for the long-term prospect, about their investments. This is what Georgia must focus on: clear rules, not too many frequent changes in legislation, clear and long term objectives.
Q. In your previous interview with The FINANCIAL you mentioned that throughout Grant Thornton's 12 years of operations in the Georgian market, Georgian companies have become more and more aware of the benefits of trustable financial information. Please name the advantages trustable financial information both for internal and external use?
A. I answered, yet, about external use. But, you are right, there is, first of all, a significant benefit for internal purposes for those companies who run an accurate accounting system. When companies are developing fast or when their size turns to be large enough, management needs a full and comprehensive financial system in place. This accounting record keeping system help to timely find the right information, to evaluate consequences of management actions. So, the financial system has multiple advantages.
Q. How would you evaluate the financial documentations and statements of current Georgian companies you are auditing? How has the situation as well as companies attitude changed towards preparing more detailed and accurate financial documentations?
A. One cannot imagine operating or collaborating with international companies or western banks or international investors without fair financial information. Many Georgian companies understand this it and are preparing better quality financial information. Company managements understand that they need their financial statements to be audited by an international recognized audit company. This also explains Grant Thornton’s rapid development, especially in the last couple of years.
Q. The European Commission recently issued Green Paper on Audit Policy which identifies excess market concentration by Big Four firms? What was your reaction to this policy paper?
A. Grant Thornton welcomes the debate which has been opened by the Green Paper. We believe that it represents a timely and significant opportunity for change. Following issuance of the EC Green Paper, prominent global mid-tier audit firms have called for regulatory intervention to improve competition and reduce Big Four concentration of the audit market. In Georgia, this is especially true for the banking sector.
There is really a need for regulatory intervention. We are ready to work with the National Bank and other government agencies to address the issue. Abolition of Big Four lending clauses will introduce practices that require audit committees to regularly reassess audit appointments. We need to address the misperception that there are a limited number of firms that can do certain work.
Abolishing these clauses is one way to promote free trade. We have clients that want to engage us but are restricted because of restrictive covenants that are imposed on them by banks and other outside parties. The theory behind the regular reassessment of audit appointments is that it improves transparency and corporate governance, and allows audit committees to assess other firms in the market.
Q. Auditor’s profession is somewhat universal in many countries. How is your work regulated when there are increasing number of cross-border assignments?
A. Uniformity across the profession is influenced by the cohesion among the professional bodies. For example, International Federation of Accountants (IFAC), Association of Chartered Certified Accountants (ACCA) and Georgian Federation of Professional Accountants and Auditors (GFPAA) all these three professional bodies share the same core principles, code of ethics and professional standards. This is pretty consistent. That is why, global firms like Grant Thornton invest significant resources quality of their professional services. Our strength is in being a part of a cohesive global organization, providing our clients with distinctive, high quality service in over 100 countries.
What refers to regulation of profession, I will just give you a recent example from US and UK. Grant Thornton and colleagues from five other global firms have recently welcomed the cooperative agreement between US Public Company Accounting Oversight Board (PCAOB) and UK Professional Oversight Board (POB) for regulating the audit firms.
The global nature of corporate activity demands that audit regulators share information and cooperate across borders. This enables audit firm inspections to move forward and hopefully regulators in other countries will also follow. Such cooperation benefits not only the regulators and registered audit firms but also investors, whose investments today increasingly cross borders.
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